By Babajide Komolafe & Michael Eboh
EQUITIES Slow down in market indices to ease The downward trend in the equities segment of the Nigerian Stock Exchange last weekÂ is expected to ease this week, as investors take position in stocks following the attractive results released by a number of the blue chip companies and the low prices of some of the blue chips after a week of steady decline in share prices.
Last week, a bearish trend was recorded in the Exchange, as investorsâ€™ holdings on the Nigerian Stock Exchange (NSE) depreciated by N232.11 billion.
In particular, investorsâ€™ value, represented by the market capitalisation dropped by 3.44 per cent to close the week at N6.515 trillion from N6.747 trillion at which it opened.
The All-share index, another indices for measuring performance of listed equities, shed 3.49 per cent to close the week at 26,784.90 points from 27,753.13 points.
The decline in the market was occasioned by profit-taking activities, as investors trade off their shares to take advantage of the continuous upward movement of share prices recorded in since the beginning of the month to make quick gains.
In addition, the prices of seven stocks were adjusted for dividends and/or bonus by the Nigerian Stock Exchange (NSE) following recommendations by the Board of Directors of the companies.
Oando Plc was adjusted for bonus of one for two, Nigerian Bottling Company Plc was adjusted for dividend of N0.50 per share, Okomu Oil Palm Plc was adjusted for dividend of N0.30 per share.
Others are Nigerian Aviation Handling Company Plc, which was adjusted for dividend of N0.45 per share. UACN Property Development Company Plc was adjusted for dividend of N0.50 per share and bonus of one for four, while Berger Paints (Nigeria) Plc was adjusted for dividend of N0.50 per share.
Also, operators attribute the downward trend in the market to an increased activity in the fixed income market.
Mixed outlook for yields and prices
The outlook for prices of and yields on FGN bonds for this week is mixed due to uncertainty about market liquidity. Should the statutory allocation be released this week, it would engender increased liquidity of which a significant portion would be channelled to the secondary market for FGN bonds. But if the allocation is delayed till next week, the interbank market would be tight for liquidity and hence a slowed down in bond trading.
Last week, the Debt Management office 9DMO) , through the Central Bank, mobilised N80.00bn in its monthly auction exercise held on Wednesday, 19th May 2010. The exercise was re_opening of 3_year FGN Bond 5.50% February 20, 2013, 5_year FGN Bond 4.00% April 23, 2015 and 20_year FGN Bond 8.50% November 20. 2029, the market subscription level was quite significant and encouraging.
For the 3_year FGN Bond, the subscription level was N26.05bn and allotment of N25.0bn was done among 69 successful bids at 8.25%. For the 5_year FGN Bond, total bids of 62,Â amounting to N26.20bn was received from the market, as N25.00bn was allotted to successful bids at 10.00%.
The 20_year FGB Bond was equally well subscribed at the auction. The result showed subscription level of N43.46 with total bids of 68. The issue amount of N30.00bn was allotted among 54 successful bids at 10.00%.
At the Secondary market, yield of the FGN Bonds â€œsecurity descriptionâ€ rose from Monday till Thursday due to interest rate hike in the money market. These trading securities, however, trended downwards as at the last trading session of the week under review due to abrupt exit from the market in order to minimize losses
Last week, the secondary market recordedÂ a turnover of 145.8 million units valued at N171.270 billion wasÂ in 1,127 deals, in contrast to a turnover of 265.1 million units valued at N322.06 billion in 2,537 deals.
The 6th FGN Bond 2019 Series 4, recorded the highest patronage in the sector, trading 23.15 million units valued at N23.9 billion in 187 deals.
This was followed by the 6th FGN Bond 2029 Series 5 with the exchange of 20.3 million units valued at N22.31 billion in 175 deals.
Of the 39 bonds available in the market, 22 enjoyed investorsâ€™ patronage in the week under review, compared to 28 in the preceding week.
Meanwhile, there were no transactions in the Federal Government Development Stocks, State Government Bonds and Industrial Loans/Preference Stocks sectors.
Activity in the market is expected to be driven, this week, by uncertainty in the capital market, especially, over the fate of banks and operators in the capital market, following the on-going reforms in the banking and capital market sectors.
Also, experts in the financial sector have predicted that the Central Bank of Nigeria (CBN) in the next couple of weeks will introduce a number of measures that will make investing in the fixed income market attractive.
These measures, they said, are long overdue, following the continuous decline in the countryâ€™s currency against major international currencies and the rise in the countryâ€™s inflation rate.
The inactivity in the Federal Government Development Stocks, State Government Bonds and Industrial Loans/Preference Stocks sectors is expected to continue this week, following the dearth of the instruments in the market.
The lull recorded in mutual funds listed in the Memorandum Quotations segment of the NSE, last week,Â is expected to give way for an upward trend this week.
Activity in the sector is expected to be driven by renewed interest in the sector, as investors realise the importance of collective investment schemes.
The Securities and Exchange Commission (SEC) also made case for the sector, when the Director-General, Ms. Arunma Oteh stated that the commission will encourage the floating of more collective investment schemes, which will give investors the opportunity to tap from the knowledge, skills and expertise of fund managers.
Last week, fund managers of the Nigerian International Debt Fund (NIDF) informed the NSE and the investing public of its coupon payment of N206.93 ($1.38) to note holders on June 11, 2010.
The fund managers noted that the coupon amount will be paid to investors whose names are on its registers as at November 16, 2009..
Another major boost for the sector, is the plan by Access Investment and Securities Limited, a wholly owned subsidiary of Access Bank Plc, to raise N2 billion via the introduction of two mutual funds.
The company in its prospectus stated that it would be offering 10 million units each of two mutual funds to the public at N100 per unit. The mutual funds on offer are â€˜The Access Balanced Fundâ€™ and â€˜The Access Fixed Income Fundâ€™.
The company stated that the minimum subscription amount to either offer is N50,000 for 500 units, after which additional subscriptions can be made in multiples of 100 units. The offer will open for six weeks, starting from Monday, June 7, 2010. The Funds have limitless absorption capacity as investors can subscribe during and after the offer.
Of the 26 mutual funds listed on the NSE, three appreciated, seven recorded decline in their prices, while 16 closed flat.
Naira exchange rate to cross the N149 mark
The naira exchange rate in the official market will cross the N149 mark this week except the Central Bank of Nigeria intervene to clear the huge volume of unsatisfied demand.
Indication to this emerge last week with the highest bidding rate at the WDAS session on Wednesday rose to N149.84 from N149.5 per dollar.
This, Investigation reveals is fuelled byÂ strong expectation of further depreciation of the naira due to CBN not increasing supply enough to meet rising foreign exchange demand.
Last week, a 26 per cent increase in demand caused the naira to lose 12 kobo as the official exchange rate rose to N148.93 per dollar from N148.81 the previous week. Demand rose to $1.005 billion from $795 million the previous week. On the other hand, CBN increased amount sold by 34 per cent to $900 million from $677 million the previous week. This imply $100.05 million unsatisfied demand.
The naira also depreciated at the interbank market, as well as the bureau de change/parallel market segment.
At the interbank market the naira depreciated by 48.5 kobo as the interbank rate rose to N151.7722 per dollar from N151.2875 the previous week, due to demand pressure by end users and also lower dollar inflow liquidity from oil firms of just $6million.
At the BDC/parallel market the naira also lost 50 kobo as the exchange rate closed at N153.50 from N153 per dollar.
Cost of funds to moderate around current band
Interbank interest rate will remain stable around the current band except the statutory allocation fund is released.
Though interest rate closed relatively lower on Friday compared with the levels on Wednesday and the previous week, there was sharp increases in rates during the week owing to significant outflowÂ occasioned by the withdrawal from the system through Foreign exchange funding put at $700m, Nigerian National Petroleum Corporation (NNPC) withdrawal worth over N100bn, and combined effect of Treasury bills subscription_of N105.11bn resulted to the sudden rise in rates. Another reason was the frequency of some houses to the Standing Lending facility of the CBN at 8.0 per cent.